Previously I have written about the importance of the millennial generation and how this group is changing the face of wealth management. This is this very same generation that is driving technological change in the fintech space. Not only does this generation not see a traditional bank branch in their future, they expect banks to provide them with state of the art products and services they demand. This is, in many cases, at odds with what the traditional banks think they can sell to this market segment.
This new generation believe that consumer banking services must travel at least as fast as their 4G connection. 21st century software groups are targeting the preserve of the traditional banks and winning millennial custom.
The reason this is happening is because millennials expect their smart phone devices to do everything from their financial affairs to their social media activities. Agile software start-ups are recognising this trend and satisfying the demand. Interestingly, not all customers are millennials, older customers are adding momentum to the demand for greater levels of service and extended product ranges. Traditional banks are now challenged on all fronts.
Governments are keen to see greater competition in this marketplace. In the UK traditional banks have been encouraged to introduce their own proprietary APIs (Application Program Interface) to help compete with the new arrivals from the fintech space . The standard to which traditional banks are now having to compete is that the new arrivals offer modern technology enabled platforms and applications matched with compelling propositions focussed around speed, ease of use and value for money. Quite simply, these new offerings hammer traditional banking models and the speed of the innovation is impressive.
To respond to this competition, traditional banks will need to re-examine their perceptions of the needs of their consumers. In addition to the added competition, even greater challenges for traditional banks are gaining momentum in the regulation space, both from the European Union (PSD2) and from the UK regulator. These changes may herald potentially greater access for fintech start-ups to the Faster Payments scheme, further adding to the new entrants’ abilities to compete.
Is banking about to have its social media moment? A new digital era has already begun in financial services. Traditional banks, in response, are cost cutting and returning to the core profitable elements of their businesses. Traditional banks will continue to be dominant parts of the economic ecosystem for the foreseeable future. They ride their fabulous brand equity and benefit from relatively captive loyal customers from less demanding consumer segments. However, in order to maintain their current market positions and re-establish the dominance they have previously enjoyed, traditional banks must fully satisfy the demand for fast, innovative, more socially integrated internet based products. The time for investment and development in these systems is now.
By: Brian Donegan